Procurement is moving toward digital transformation, but one underutilized tool remains the digital contract. While many organizations still store contracts as static PDFs, there is significant potential to leverage advanced contract lifecycle management (CLM) systems to unlock value, reduce risk, and improve efficiency. By fully embracing digital contracts and incorporating artificial intelligence (AI), procurement can transform contracts into strategic assets that support business outcomes.
Digital Contracts: From Legal Necessity to Strategic Asset
Contracts are often seen as administrative paperwork, but when digitized and integrated into a CLM system, they become valuable sources of information for managing risk, pricing, and supplier obligations. Many procurement teams, however, fail to extract the full value from these documents, often leaving crucial data buried in static files.
One underappreciated aspect of contracts is their role in risk management. While procurement typically focuses on price and functionality, risk is often overlooked. By using digital contracts to quantify and manage risk, procurement can negotiate more favorable terms and reduce unnecessary costs. Digital contracts provide real-time visibility into key clauses, allowing procurement teams to respond quickly to supplier disputes, mergers, and contract renewals.
Technology’s Role in Optimizing Contract Management
Despite advances in e-signature technologies, many procurement teams have been slow to adopt comprehensive digital contract systems. A recent survey revealed that 73% of respondents still save contracts as PDFs on shared drives. Only a minority use CLM platforms, and few have adopted AI-enabled contract creation.
Digitizing contracts with a CLM system offers significant benefits, such as making contracts searchable and easy to retrieve. This eliminates inefficiencies, allowing teams to quickly access critical data, like termination rights or renewal dates, without manual searching. AI-enhanced systems go further by automating data extraction and risk analysis, helping procurement teams make more informed decisions.
AI tools can also surface insights hidden in contracts, streamlining the contracting process by automatically identifying risks and helping procurement teams act on this information without delay. These systems reduce reliance on manual tasks, saving time and improving accuracy in contract management.
Overcoming Barriers to Digital Contract Adoption
Cultural barriers often hinder the adoption of digital contract management. Procurement and legal teams frequently operate in silos, resulting in fragmented processes and duplicate systems. A unified CLM system can streamline operations and improve collaboration, ensuring all parties have access to the same contract data in real time.
Another obstacle is securing buy-in from stakeholders. Procurement teams need to clearly demonstrate the value of CLM systems, highlighting benefits such as faster contract turnaround, improved compliance, and reduced risk. When properly implemented, these systems offer substantial returns, including better negotiation outcomes and cost savings. Some organizations have even recovered significant sums through improved contract visibility, which highlights the financial value of adopting a robust CLM system.
The Role of AI in Contract Management
AI plays an increasingly important role in contract management by automating key tasks such as contract generation, risk assessment, and negotiation analysis. AI can review past contracts to identify patterns and preferences, flag risky clauses, and recommend changes to ensure consistency and mitigate risks.
In the future, AI could allow for more dynamic contract creation. Instead of starting with static templates, AI could tailor contracts to the specific risks and complexities of each transaction, reducing time spent on negotiations and improving contract outcomes.
Digital contract management offers a significant opportunity for procurement teams to streamline processes, reduce risk, and enhance supplier relationships. By moving beyond static PDFs and adopting CLM platforms with AI capabilities, organizations can unlock the full value of their contracts. As technology continues to evolve, contracts will play an increasingly strategic role in procurement, driving better business outcomes and helping teams operate more efficiently in a competitive marketplace.
